Junk Bonds Popular Choice For Investors

New York-- The money manager's job is supposed to be straightforward: Take people's cash and put it to work. The more money that comes in, the bigger the manager's paycheck.

So why would two of the country's largest fund managers tell would-be investors to invest in junk bonds, the common name for bonds issued by companies with the lowest credit ratings, to scram?

CBS Money Watch said the short answer is that it's for their own good. The market for junk bonds, the pros say, has become so popular that it's dangerous.

Thanks largely to the unsteady economy, interest rates on U.S. government bonds have fallen to record lows. And individual investors remain leery of the stock market.

Desperate for better returns, they're sinking billions into higher-paying bonds backed by businesses with bad credit scores. Those deeply indebted companies have borrowed a record amount from investors and are increasingly using the money in ways that could strain their ability to pay it back.

Earlier this year, two mutual fund giants, T. Rowe Price (TROW) and Vanguard, began turning down people hoping to invest in funds that buy junk bonds. Both said they were running out of worthwhile places to put customer money.

"It's getting harder and harder to find places to invest," says Michael Gitlin, director of fixed-income at T. Rowe Price. He says investors are getting paid record-low interest rates for taking on much more risk.